The Impact of Foreign Aid on Income Inequality: Evidence from Developing Countries. Application of the FMOLS Approach

Misbah Nosheen; Sundas Maqbool; Syed Hila Mubarak; Amanat Ali

doi:10.51732/njssh.v7i2.88

Authors

Misbah Nosheen Department of Economics, Hazara University, Mansehra, Pakistan
Sundas Maqbool Department of Economics, Hazara University, Mansehra, Pakistan
Syed Hila Mubarak Department of Economics, Hazara, University, Mansehra, Pakistan
Amanat Ali School of Economics, Quaid-i-Azam University, Islamabad, Pakistan

DOI:

https://doi.org/10.51732/njssh.v7i2.88

Keywords:

Foreign Aid, Inequality, Gini Index, Pedroni Test

Abstract

The present study aims to evaluate the impact of foreign assistance on income inequality of selected developing economies. Panel co-integration technique is applied for the purpose of estimation. After confirming the pre-conditions for cointegration, we have applied the Fully Modified-OLS method to estimate the association between foreign aid and income inequality. Controlling for other variables, we find a positive and significant association between foreign aid and inequality. The empirical results are robust concerning the sub-samples of developing economies selected according to the income classification of the World Bank. The empirical results are also robust concerning the alternative measure of income inequality.